The Italian Competition Authority starts a phase II investigation into a merger in the retail cosmetic sector

The Italian Competition Authority (ICA) has opened a phase II investigation into the acquisition of La Gardenia and Limoni by CVC (Case C12109, Profumerie Douglas/La Gardenia Beauty-Limoni). CVC Capital Partners SICAV-FIS SA (CVC) is a private equity firm that provides advice and investment management services on behalf of collective investment funds. CVC owns Profumerie Douglas (Douglas) that is a retailer of cosmetics and perfumes and related products and services. La Gardenia Beauty Spa (La Gardenia) and Limoni Spa (Limoni) are owned by Orlando Italy Special Situation SICAR Sca (Orlando) and both of them are active in the retail distribution of perfumes and cosmetics. Through sale and purchase agreements concluded by Douglas and Orlando, CVC will acquire indirect and sole control of La Gardenia and Limoni.
Because the proposed transaction met the jurisdictional thresholds in the EU Merger Regulation no. 139/2004 (EUMR), it had an EU dimension and was duly notified to the Commission in June 2017. In July 2017 the Commission referred the merger to the ICA pursuant to Article 4(4) EUMR (Case M.8531, CVC/La Gardenia/Limoni).
The ICA took the view that post-merger the activities of the merging parties will overlap in the following relevant product markets: i) the market for the selective distribution for the retail of cosmetics and luxurious perfumes; ii) the market for procurement for cosmetics and luxurious perfumes; and iii) the market for the provision of aesthetics services. The ICA expunged from the market for the selective distribution for the retail of cosmetics and luxurious perfumes the online sales. From the consumer’s viewpoint, the online distribution channels are not completely substitutable with the in-store channels. The purchase experience of consumers is different whether the purchase is made online or in-store. The geographical dimension of the above relevant product markets is local and were determined by the ICA by the method of isochrones. The relevant geographical markets were then identified by the ICA in the areas within a range of approximately 20 minutes travelling time by car from the stores of the merging parties. More specifically, the ICA took into consideration 126 isochrones centred on the Douglas’s stores.  
Nationwide, the La Gardenia and Limoni group is the first operator in the relevant product market for the selective distribution for the retail of cosmetics and luxurious perfumes, whereas Douglas is the second largest player in this market. Post-merger the merging parties will have a 35-40% combined market share. Therefore, with the consummation of the merger Douglas will become the largest retailer in this market. Concerning the relevant geographical market, the ICA identified 39 local areas where the merging parties will have a combined market share of at least 45% that in some areas may be much higher, even reaching a 85-90% share.
On the contrary, the Commission did not have any concerns on the competition impact of the notified merger in the other relevant product markets. In the market for procurement for cosmetics and luxurious perfumes the merging parties compete with strong large multinational operators that are capable to exert an effective competition pressure on the former. The merging parties have only small shares in the market for the provision of provision of aesthetics services, whose competition structure is unlikely to be reduced by the notified merger.
To sum  it up, the merger to be reviewed by the ICA in Profumerie Douglas/La Gardenia Beauty-Limoni  will put together the two largest retailers in the market for the selective distribution of cosmetics and luxury perfumes. The entity resulting from the merger will be the most important player in this market and is likely to restrain competition in many local areas. It can be argued that the ICA might approve the merger by requiring the parties to sell a number of stores to independent third parties so to restore the competition health of the market.
Profumerie Douglas/La Gardenia Beauty-Limoni is also a remainder that investments made by private equity firms that overlap with the activities of the investees already in the portfolio of the private equity fund may give to horizontal competition concerns. Such concerns are to be assessed on the basis of the same principles and rules that apply to the other horizontal concentrations

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